Bolivia vs. the Corporations

I've started reading Daniel Cohen's new book, Globalization and its Enemies, which argues that poor countries are poor not because they've been exploited by rich countries and multinational corporations and the IMF and the like, but because they've been unable to enter the global economy, even when they want to.

That may sound like familiar territory, but Cohen actually makes a number of surprising and novel points, and while I'd say that he understates the amount of exploitation going on, there's surely something to his argument that many developing countries suffer not from too much globalization but too little. (I'll try to write more on the book once I'm done; Cohen does put forward a more nuanced account than the usual Economist line that poor countries just need more free trade and everything will be "fine.") So that brings us to Bolivia.

Since the 1980s or so, the vast majority of foreign direct investment from the First World has gone not to poor countries but to other wealthy countries (and China). I have some ideas as to how and why this all came about, but they're probably wrong, so I'll set those aside. What's better-known is that many developing countries have signed various Bilateral Investment Treaties (BITs) over the years in order to try and attract some of those investment flows. These BITs are basically laws that offer a great deal of legal protection to companies that invest in a given country.

Bolivia's former leaders had previously signed a BIT with the United States, under which foreign companies could sue if future Bolivian governments passed laws that undermined their investments. In 2000, when activists in Cochabamba drove Bechtel out of the country, after the company had contracted with the government to privatize the countries water supplies and then raised local water rates, Bechtel sued the Bolivian government under the BIT for $50 million. The company only backed down after a worldwide campaign by activists; it was only the second time a company had ever backed down from such a claim.

Now it's not clear whether the major oil companiesincluding ExxonMobil, Repsol, Total, British Gaswill sue after Evo Morales' latest move to partially "nationalize" the gas industry (which really just amounts to renegotiating outlandish concessions given to foreign companies by former corrupt leaders, so as to make sure more of the wealth goes to ordinary Bolivians). The firms certainly have the power to do so: When former president Carlos Mesa proposed to raise taxes on natural gas production, he backed down under litigation threats. And the IMF, World Bank, and Inter-American Development Bank all have ways of hurting Bolivia if it doesn't pay up.

But that's still up in the air. What I'm interested in now is whether these BITswhich, among other things, cede democratic decision-making to foreign corporationsactually do encourage foreign investment flows. Are they worth it? Interestingly, a 2004 report by the International Institute for Sustainable Development noted that they probably aren't much good. Countries such as Brazil and Nigeria receive plenty of foreign investment "despite shying away from such treaties," while many smaller countries in Central Africa and Central America have "entered into a raft of BITs" and still attract very little foreign investment. Signing away your sovereignty isn't always the key to success, apparently. (One could also debate the merits of foreign investment itself, but that's another story.)